ModivCare Inc (MODV) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2013 Providence Service Corporation earnings conference call. My name is Dave. I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, the call is being recorded for replay purposes.

I'd now like to turn the call over to Alison Ziegler of Cameron Associates. Please proceed, ma'am.

Thanks, Dave. Good morning, everyone, and thank you for joining us this morning for Providence's conference call and webcast to discuss financial results for the third quarter ended September 30, 2013. The press release was issued yesterday after the market close.

Before we begin, please note that we have arranged for a replay of this call. The replay will be available approximately one hour after the call's conclusion and will remain available until November 14. The replay number is 888-286-8010 with the pass code 49143112. This call is also being webcast live with a replay available. To access the webcast, go to www.provcorp.com and look under the investor information tab as well as the event calendar.

Before we get started, I would like to remind everyone of the Safe Harbor statement included in the press release and that the cautionary statements apply to today's conference call as well. During the course of this call, the Company may make projections or other forward-looking statements regarding future events or the Company's beliefs about its financial results for 2013 and beyond. We wish to caution you that such statements are just predictions and involve risks and uncertainties. Actual results may differ materially.

Factors which may affect actual results are detailed in the Company's recent filings with the SEC including the Company's 10-K for the year ended December 31, 2012. The Company's forward-looking statements are dynamic and subject to change. Therefore, these statements speak only as of the date of this webcast, November 7, 2013. The Company may choose from time to time to provide updates and if they do we will disseminate the updates to the investing public.

In addition to the financial results prepared in accordance with generally accepted accounting principles, or GAAP, stated in the press release and provided throughout our call today, the Company also has provided EBITDA and adjusted EBITDA, non-GAAP measures which present its earnings on a pro forma basis. Providence's management utilizes these non-GAAP measurements as a means to measure overall operating performance and to better compare current operating results with other companies within its industry.

Both EBITDA and adjusted EBITDA are measurements not determined in accordance with or an alternative for generally accepted accounting principles and may be different from pro forma measures used by some companies. A definition calculation and reconciliation to the financial statements of each can be found in our press release. The items included in the non-GAAP measures pertain to certain items that are considered to be material so that exclusion of the items would in management's belief enhance readers' ability to compare the results of the Company's business after excluding these items.

I'd now like to turn the call over to Warren Rustand, Chief Executive Officer. Go ahead, Warren.

Thank you, Alison, and good morning. After our scripted remarks, we will be available to take your questions.

With us today on the call we have Bob Wilson, our CFO; Herman Schwarz, CEO Logistic Care; and Craig Norris, CEO of our newly rebranded Human Services Division. We believe that the term Human Services is better aligned with what we do beyond the narrow definition of Social Services and is reflected in our mix of business both today and where we could envision ourselves in the future given the evolution of healthcare systems.

You may have also noticed this rebranding on our website with our newly defined mission of creating healthier communities.

Turning to the third quarter, Providence continued to show solid results. We reported revenues of nearly [$276.7] million, $845 million for the first nine months of the year. As Herman will discuss in more detail, NET revenue was pressured in the quarter by the transition of (technical difficulty) from an at risk to an administrative services only or ASO contract as well as our termination of Wisconsin which was effective August 1. This was mostly offset by continued expansion in California, membership growth in New York City, Texas and Georgia and negotiated rate adjustments in selected programs.

Despite the pressure we saw on the top line, we saw a continued improvement in the NET gross margin both sequentially and year-over-year and solid growth on the bottom line.

In our Human Services segment, revenue increased slightly year-over-year in the third quarter. Our census increased by just over 9% with gains seen generally across the board. While I will let Bob provide a more detailed review of our financials, we saw continued improvements in our consolidated operating margins (technical difficulty).

Our management team remains focused on driving organic and acquisitive growth and improving operating efficiencies through various internal efforts. We continue to believe this will help position us for emerging trends in healthcare such as coordinated and integrated care and continued outsourcing of transportation management.

While there is more clarity around which states will participate in Medicaid expansion, with 29 states plus the district of Columbia currently moving towards expansion, there are still uncertainties at the state level as to how many and when. In our NET division, 11 of the states where we cover Medicaid lives are now participating in the expansion, New Jersey being the most notable among them and our largest contract.

On the Human Services side where we'd expect to benefit more gradually from enrollment, Arizona and California are two of 10 states and are the largest states that are participating with several other states anticipating to opt in as well. Until the states are able to give us more clarity and projections, we will continue to be cautious about projecting the impact of this population on our business.

The favorable trends we see in healthcare today continue to be opportunities for Providence. We have enduring relationships with payers, clients and referral sources. We have geographic reach, breadth of services, and experience. We manage to find populations in provider networks. We have demonstrated confidence in contract bidding, infrastructure and manage care contracting experience as well. This should serve us well as we continue to position the Company for the future.

Let me now turn the call over to Bob Wilson, our CFO, who will provide more detail on the third-quarter results reported in our press release last night.

Thank you, Warren. As was just mentioned, revenues for the third quarter of 2013 was $276.7 million, a decrease of 1% from $280 million in the comparable period in 2012. Frank and Herman will provide more detail about these results in just a few moments.

We did have net income of $3.5 million or $0.25 per diluted share in the third quarter compared to net income of $1.2 million or $0.09 per diluted share in the comparable period last year.

As we've discussed on previous earnings calls, both of our business segments typically experience softer operating results in the summer months of the third quarter. Human Services experiences lower client demand due to summer school closures and vacations and therefore lower revenues. While net revenue streams are relatively fixed, it typically experiences higher demand for transportation services due to favorable weather during the third quarter and therefore higher costs.

That said, our consolidated operating margin showed improvement for this quarter compared to the third quarter of 2012, 2.9% this year compared to 2.7% last year even excluding the impact of an impairment charge of $2.5 million taken in the third quarter of 2012.

EBITDA for the third quarter of 2013 was $11.2 million compared to $9 million in the same period last year. Adjusted EBITDA for the third quarter of 2013 was $11.7 million compared to $11.5 million in the same period last year.

EBITDA for the first three quarters of 2013 was $43.2 million compared to $27.2 million in the same period last year. Adjusted EBITDA for the nine-month period ended September 30, 2013 was $44.2 million compared to $30.3 million for the same period in 2012. This represents a year-over-year increase of 46%.

EBITDA margin increased from -- to 4% in the third quarter of 2013 from 3.2% in the third quarter of 2012. EBITDA margin also increased to 5.1% for the nine months ended September 30, 2013 from 3.3% for the nine months ended September 30, 2012. This represents progress towards achieving our stated goal over time of achieving EBITDA margins in the 6.5% range.

We previously communicated to you that we expected our effective tax rate for 2013 would be in the range of 40% to 42%. However, our actual effective tax rate for this quarter was 36.7% and 39.8% for the first nine months of the year. This is due primarily to the significant tax benefits realized from incentive stock options that were exercised during the quarter. The increased incentive stock option activity is largely attributable to the positive movement in our share price.

Notwithstanding future incentive stock option activity, we would still expect our tax rate to be in the 40% to 42% range going forward for the full year. This does compare by point of reference with 49% in 2012. Where we land in that range of 40% to 42% really depends on largely the tax rates in which we operate -- in the states in which we operate and generate taxable income.

We continue to generate robust net cash flow from operations, $45.7 million in the first nine months of the year compared to $39.9 million in the same period in 2012.

At September 30, 2013, we had unrestricted cash and cash equivalents of $91.1 million compared to $74 million at June 30, 2013 and $55.9 million at the end of last year. This strong cash flow from operations and combined with strong cash position coupled with the increased borrowing capacity of approximately $100 million that we put in place in connection with our debt refinancing during the quarter significantly enhances our financial flexibility as we continue to set our sights on investments in growth opportunities, technology and other infrastructure improvements. To date we have not tapped into the credit facility for either operating or investment purposes.

I will now turn it over to Craig to discuss the performance of the Human Services business for the quarter.

Thank you, Bob. For the third quarter, our client census on the Human Services side was approximately 56,000 clients. This is up approximately 5000 clients from the prior year quarter. All clients are being served from 353 local offices, in 23 states, the District of Columbia and Canada. There are approximately 6200 employees serving 473 contracts.

The contract count in the segment was down year-over-year for the quarter primarily driven by the funding changes in the No Child Left Behind Act. This is something I previously discussed on our calls.

Revenue increased slightly year-over-year in the third quarter primarily due to the new workforce development contract in Wisconsin that started up in 2013 as well as improvements in other certain markets. While we did experience areas of softness in the quarter, mostly related to underperformance in a few managed-care markets as well as summer seasonality, we did however see census improvement of nearly 9.5% which represents census gains across most of our markets from the prior-year quarter. This helped offset reductions to the workforce development business in Canada and the expiration of contracts related to our tutoring program.

Our Wisconsin contract is now fully implemented and had a solid performance in the quarter. We are also in discussion for next year's contract and have an opportunity to improve our rates.

As of September, our Texas contract finally began transitioning over clients from the state system. The rollout is taking longer than expected and clients likely won't be fully transferred until the end of Q1 2014. This is the first of what will be numerous contracts in Texas and there are and have been numerous technical delays while we partner with the state to implement an operationalize certain aspects of the new system of care. We will continue to diligently partner with the state of Texas so the system is effectively implemented.

As we move out of Q3 and into Q4, as I said on the last call, many of our markets are beginning to stabilize and in certain markets, enrollment forecasts resulting from Medicaid expansion are beginning to be discussed.

The pipeline is continuing to expand and we are vetting number of opportunities. We recently closed on a very small but strategic tuck-in acquisition in North Carolina. We will continue to diligently evaluate these potential opportunities and look to make additional strategic acquisitions in 2014 especially in markets that are continuing to consolidate their provider systems.

Now I will hand over to Herman for more details on LogistiCare.

Good morning, everyone. In last quarter's call, I discussed how the transition of Connecticut to an ASO model and the loss of our Arkansas contract had negatively impacted revenue but had been more than offset by the year-over-year growth in New York City, Texas and Georgia as well as in key managed-care contracts.

While these positive growth factors continued into the third quarter, they were not enough to overcome the additional effect on revenue of also terminating the Wisconsin contract as of August 1. The resulting $192 million of revenue in the third quarter is a 2.2% declined to last year and a 3% decrease to this year's second quarter which also benefited from the retro payment from New Jersey.

During the third quarter, we did experience positive revenue trends in both Missouri and Oklahoma where we implemented new contracts that had higher rates going into effect on July 1. Despite the revenue decline, our gross margin in the quarter continued to improve due to these rate increases and the growth in the New York City ASO contract.

Transportation expense in the third quarter was 76.7% of revenue versus 79.9% last year during the quarter and also compared favorably to the 77.6% rate last quarter. Non-transportation expenses as a percent of revenue did increase slightly over last quarter as we increased our call center staffing to meet the more demanding performance requirements we are seeing in newer contracts.

We manage transportation in 43 states and the District of Columbia and have a census of 16.0 million eligible members up from 14.8 million a year ago but down from 17.2 million eligible last quarter primarily due to the exit from Wisconsin.

In RFP activity, North Carolina finally canceled its RFP process without moving forward. However, the Rhode Island opportunity has progressed. While there has been nothing announced publicly, we are expecting a positive outcome in that state.

In brand-new processes, Texas released a draft RFP and invited comments from potential bidders. The official RFP for the 10 regions are currently under the broker structure is expected to be released in the next few weeks. Bidders will be required to submit proposals for each of the 10 regions so this is quite a big undertaking.

Also in late October, West Virginia issued its long promised RFP for a statewide program. We are already at work on this submission which has a fairly quick turnaround.

In rebid states so far we have had mixed results. And good news, it was recently announced that we are the winner of the RFP in Michigan and in a disappointing decision that we were notified of last night, we were not selected as the bidder in Mississippi. We will obviously review this decision closely and consider a protest if appropriate.

In two other critical rebid states, South Carolina and New Jersey, we know the agencies are hard at work at completing their RFPs to be released over the next few months. We also had very good success in securing new managed-care contracts in Michigan where we have contracted to add over 500,000 new lives between now and the end of the first quarter of 2014.

In California, we have two large MCO programs starting the first of the year which will expand our services into some of the more rural parts of the state.

Our business development efforts in the managed-care environment are extremely active right now. While most of the dual eligible pilot programs that offer services to beneficiaries with both Medicaid and Medicare coverage have been delayed later into 2014, we are in active discussions with many of the designated program managers regarding the transportation benefit in these plans.

We are also very active in Florida working with many of the designated winners in the transition to managed care for about the long-term care and regular Medicaid populations. This structural change in that state threatens our present market share but also provides an opportunity to increase that share if we can secure your lives in the transition.

I will now turn the call back over to Warren.

Herman, thank you very much. Overall, we are pleased with the progress the Company has made in 2013 and we remain committed to initiatives that we set forth at the beginning of this year primarily targeted at improving inefficiencies. We continue to believe that the impact of Medicaid expansion under the Affordable Care Act will create opportunities for us to serve a substantially larger population of currently underserved citizens.

Beyond Medicaid expansion, general healthcare market trends which include growing awareness of the need to coordinate physical and behavioral healthcare services and the importance of facilitated nonemergency access to preventive services, will also provide opportunities. And with a strong cash position coupled with increased financial capacity, we are pursuing growth oriented initiatives and investments to further position our business for the future.

With those comments, we will open the call to questions.

(Operator Instructions). Bob Labick, CJS Securities.

Good morning. Thanks for taking my questions. Start with Craig on the Human Services side, if you could maybe elaborate a little bit more about the expenses in the quarter. I know there's seasonality in Q3 that we've obviously discussed in the past but typically cost of goods will also -- cost of services will also come down a little bit whereas I think it was sequentially flat to maybe up a little bit. Does that have to do with ramping up of Texas or how should we think about the gross margin in the quarter and on a go-forward basis?

I think since the Texas contract had been pushed back, similar to some of Herman's contracts over the years, we had to continue to maintain our infrastructure so that probably pressured our expenses.

On the school-based side, we do get some leverage of expense but a lot of those staff are still on the payroll so to the extent the school-based seasonality has a larger impact on us year-over-year as we expand our school-based programs, we will see some of that impact on the expense as well.

On the gross margin, I think that our expenses as we enter into Q4, the school-based revenue -- starting to have some of the Texas revenue come in should offset the expense differentiation you saw in Q3. So hopefully once we get back into Q4, with school started now, Texas is ramping up albeit slowly, I think you will see some of that start to equal itself out.

Okay, great. And then obviously overall you guys have fantastic cash flow. Craig, it sounds like they finally let you make a tuck-in acquisition. Could you tell us about the environment out there and what else might be of interest?

Guess, the tuck-in was very small. It was strategic though and it really goes to our narrative of what we see in the environment. As I've said before, on the behavior health side, it really is a consolidating environment, an environment where we are going to see fewer providers and we are very much seeing that. I think our challenge is to make sure that when we do these tuck-ins, when we look at some of the acquisitions out there that we are entering into good targets that are quality run operations. And that's part why it has taken us a little bit longer because some of these consolidating environments through attrition I think you will see fewer providers and could create organic opportunities for us. In some areas, it will be a target we might want to acquire.

So I think we continue to see that in a lot of different states and we are tracking a number of different targets. We are taking our time to make sure they are the right ones and there won't be an organic opportunity to pick up that business as opposed to acquiring it. I'm optimistic about continuing forward in that strategy and this one was just the first of many hopefully that are more small strategic. This happened to be a very bilingual provider in one of the consolidating states we are in. So it's that kind of strategy that I continue to see playing out on my side.

Okay, great, thanks. And then jumping over to the LogistiCare side, obviously very strong margins there sequentially up which I guess normally wouldn't have been expected. Just wanted to get a sense of were there any retroactive benefits in the quarter or was it a utilization? Or how to you see the strong margins and where should we think about margins on a go-forward basis?

There were no retro pickups during the quarter so that did occur in the second quarter obviously with New Jersey but nothing came through in the third quarter in that capacity.

The real reason I think that you saw the improvement in margins was certainly the rate increases that we took in Missouri and Oklahoma and obviously getting rid of Wisconsin helped as well. Those combined with -- New York City has an ASO contract -- does quite a bit of good on our margin particularly as you look at gross margins because there is no transportation expense. So with the growth in that contract, with the final phases coming in at the beginning of the year and that having a bigger influence on our numbers, it does tend to drive the gross margins.

Okay, great. Thanks. You gave us a ton of information which was appreciated. Could you maybe -- I know you don't want to say any specific contract but maybe talk a little bit about the new bidding opportunities in aggregate and the size of the opportunities from the multiple states you discussed?

Here is what I will tell you. Texas, the two broker regions currently which is the one that we have in Dallas and the one that MTM manages in Houston, are worth revenue wise somewhere the neighborhood of about $60 million to $65 million. These 10 other regions that are coming out are the rest of the state.

So we're not quite sure honestly what the size is ourselves yet but I think you can use that as a guideline to try to get a sense of it. Obviously, Dallas and Houston are the major metropolitan areas in Texas so I would balance it against that but we would probably assume from what we know that those 10 are probably worth about the same as the two from a revenue perspective.

Okay.

West Virginia, I can tell you that publicly in their RFP which is a public document, has indicated that their spend annually is $27 million.

Okay. Great, that's helpful obviously. And then you talk about the rebids that are remaining and what you expect in terms of the competition there. And then actually even more so, can you talk about how you will handle rebids or how is it going to be handled in terms of the increased enrollment because it's almost like an entirely new contract on that regard, the rate for the newly eligible versus the existing?

Exactly. The truth of the matter is we handle it however the state builds it into their RFP. So in the case of Texas, they are not expanding so it shouldn't have an impact and I don't know about West Virginia offhand. Does anybody know since we're not doing business there yet I'm not sure that -- I can't recall what they did in their RFP, Bob.

But I can tell you that in Michigan, which was an expansion state that we mentioned that we just re-won, they ignored the expansion population in their RFP. They said they weren't going to account for it at this point and they were going to only use the population that they currently knew about.

I can tell you from -- and I know this is something you've been interest in for a while -- I can tell you that while it is as frustrating to you, it is just as frustrating to us. It is very difficult to put our hands around what impact expansion is going to have. I was with New Jersey, the Secretary of Health last week and was talking to her about expansion and asked her what we could expect and as we mentioned earlier New Jersey is an expansion state and we have that contract. And her answer was come talk to me in March, we will know then. Who knows?

They've got a very wide range and they are really not sure where it's going to come from and frankly could give us very little guidance. So in these RFPs I think the path that most of these states are taking us they are ignoring it and saying they will deal with it when it happens.

Okay. Great, thanks for all the color. I'll hop back in queue.

Bob, I asked the Secretary if she would come on this analyst call and explain that to you so that you would actually believe what I'm saying too.

Don't worry, I believe you. It's unfortunate with the answer but I believe you.

And I was in Nevada earlier this week and got a similar answer. They have an estimate but they said but we really don't know and we won't know until it's over because people are just unclear where it's coming from.

Bob, this is Warren. That's why you can understand on both the Human Services side and the NET side we are being very cautious until we get much better visibility and insight into where this is going. That may be several more months yet before this is all settled. So we are not building that into our budget and we are not building that into our projections.

Right, fair enough. I think it's the only way you can treat it right now. Okay. Thank you very much.

Kevin Campbell, Avondale Partners.

Good morning, thanks for taking my questions. I wanted to start with the Mississippi contract. If you could give us some general sense as to the overall impact on revenues and whether or not the margins there are roughly in line with the margins for LogistiCare as a whole or if they are better or worse etc. so we can try and figure out potential impact to earnings.

Sure, Kevin. Mississippi, as we look at 2014 first of all, let me just say we are certainly not in a position yet to say that that's absolutely gone. We are going to look at that and as you know, we've been successful in the past when we have protested and if there is an opportunity, we are certainly going to protest in Mississippi.

That being said, our current contract will last until the end of June next year 2014 so we get a half year benefit of Mississippi. The contract is worth about $34 million, $35 million so a half year in terms of modeling for next year will get $17 million of revenue into next year or lose $17 million out of the run rate this year.

And from a margin standpoint, Mississippi is slightly above what we would consider to be an average contract. It's a good contract but it's replaceable if we have to do it.

Can you guys just remind me historically have kind of put that average EBITDA margin for LogistiCare in the 6.5% range.

Yes, between 6% and 6.5% is our average rate.

Okay, great. And, Herman, maybe you could talk about what's left to be rebid. I know New Jersey is certainly one of them. I forgot the other whether that was it South Carolina. But can you give us a sense -- not -- just sort of the aggregate revenues combined of the rebids for 2014?

Well when you're really looking -- what's left now is South Carolina and New Jersey which would be about $160 million, $165 million.

With most of that being New Jersey, right?

Most of that being New Jersey. Correct.

Okay, great. Craig, maybe you could talk about the Human Services revenue. So you had obviously strong growth in your census being up 9% but the revenues were only up about 1%. So why didn't the revenues grow more? Was that timing in terms of when the census grew? It was all at the end of the quarter and therefore it didn't have as much of an impact for the full quarter?

Yes, that's a good intuitive question, Kevin. We of course track our census count at the end of the quarter so that would have been heavily weighted obviously toward the end of September. So I would expect -- a census is a directional metric. There are environments for example, some of our capitated environments like Arizona, where increase in census is not a one-to-one relationship to revenue per se but at a lot of our markets, it is a directional indicator. So that would have come more at the end of the quarter, Kevin.

So I think it's a good question and my hope is that what we are seeing is sort of a leading indicator in some of these states. The census increase was across many markets not just in one market but as we counted that census, it was at the end of the quarter so you probably wouldn't have saw any of that benefit for the most part in Q3.

Okay. And then getting back to the expenses as a percentage of the Human Services revenue, it was up pretty significantly sequentially and even year-over-year and I'm sure there's some startup costs related to Texas there. But is there anything else that has caused that big increase? And a year from now, I know Texas is still rolling out and so you would see some headwinds for a quarter or two but a year from now, should we expect margins or expenses there to return back to the mid-80s, mid to upper 80s where they were in 2012 let's say?

Yes, I think the other thing impacting expenses really is probably the Wisconsin startup. That started up -- it was in startup mode for the first six, seven months of the year and now we've kind of grown into that implementation. So that along with Texas I think you are seeing the impact of expenses in those areas.

And then we have a couple managed-care states that are as I said still evolving some of our performance in those areas that probably impacted expenses as we ramp up quality assurance and programs that keep us current with some of the expectations in these new managed-care states. But the big increase in expenses comes from Texas and Wisconsin.

And again, you said Wisconsin at this point is fully ramped and Texas would probably be Q1 of next year -- end of Q1 of next year?

That's a conservative estimate. We are working with the state. It has been a very arduous process to move clients out of their system into ours. It's their first one so I think we are both taking our time to try to get this done right. There are going to be many bids in Texas and I think getting this first one right both from a technical practical perspective on how you move clients in and out of the state system into our system has taken some time.

So we are estimating at the end of quarter one of 2014 we will have our population of what they call the legacy claims transition into our system. I think it is a conservative estimate, Kevin, but given the delays I want to keep that conservative.

Kevin, this is Warren. Thinking about Texas also, the second RFP, the one we are working on now is the first RFP and so it's really a trial project and we are working very closely with the state to make sure it's implemented correctly. We have chosen not to bid on the second RFP so that we can do this one right and the state has -- sees benefit in that and really appreciates that.

The third RFP is coming out very shortly and we will be bidding on that. There will be subsequent RFPs beyond that. But we see the state of Texas as a very important place for us to do business and we're going to work very diligently at these RFPs and extend ourselves for those RFPs as they come out over the next few months.

Can you give us a sense of the magnitude of the opportunity in Texas from RFP 3 and beyond? Is it $100 million in revenue, is it $500 million or is it $20 million?

That's a good question. Our current contract at full maturity -- and we are in a pretty rural area there is $28 million and $30 million. So it's a multi-hundred million dollar type of opportunity if all the regions come out kind of like on the LogistiCare side. They started with a pilot in two regions and now they are moving forward in the rest of the regions I believe. So if it takes on a similar track to that, you are talking pretty big numbers in the couple hundred million dollars level probably or more.

Warren, could you talk about the technology rollout? I know you guys were assessing what you were going to do on the technology front last quarter and were maybe reaching a decision there. Can you help us there?

Indeed. We went out to a total of six vendors. We had a technical committee cross-sectionally from across the United States, multi-disciplined group from within the Company that evaluated those and spent scores of hours in diligence and scoring everything. In fact, we've narrowed that down to two platforms. Those two platforms are currently operating within our system. We will continue to roll out those two platforms. We think those have tremendous opportunities.

One is primarily in the West, one is primarily in the East and we think that they provide significant opportunities for efficiencies and organizational gains.

So we are anxious now to having gone through that process to now expand those two platforms. It's conceivable that over a period of three to five years that we might have a winner between those two or a dominant platform. But right now each of those two platforms is doing very well for us and we continue to see where we can add to that and invest in it.

So over the next five years we expect to make strong investments in our technology which will give us competitive advantage for the future. So we've narrowed it from six providers, analyzed those. We are down to two. We like those two, we've had experience with those two. Our people are familiar with them and we continue to move forward to utilize that for productivity gains.

Okay. And do you guys still feel pretty comfortable that the 6.5% EBITDA margin is achievable and what is sort of the timeframe for that? Is it 18 months, is it three years?

No, we wouldn't be able to give you an exact timeframe but we absolutely believe it's achievable. We are going to continue to push hard to get there. As you have seen for the first nine months of this year, we've seen a nice improvement in the EBITDA margin. We are going to continue to focus on that. We believe that's the way to create value for our shareholders is to drive margin. So clearly there's a focus on that as you have seen and we expect that to continue.

I wouldn't be able to give you an exact timeframe but clearly we'd like to get there sooner rather than later. And we recognize even in spite of our goal, both on the Human Services side and the NET side that the environments are tightening up getting tougher, harder to produce that so we've got to be even better operators going forward but we are not going to back away from that goal.

Is there any reason why over the long-term you don't think you can get back to 8% type of EBITDA range where you were in 2009 and 2010?

It remains to be seen if we can get there. We want to get to the 6.5% first and once we get there, we will set our sights higher obviously. Clearly we would like to get back to historical levels. There's no doubt about that, Kevin, and we will do everything possible to do that.

One last question for Bob. The G&A came down in the quarter. It was only $11 million. Is that a good run rate to use going forward or is there some reason why 3Q is unusually low and it might pick back up in the out periods?

Sure. I think it's a little low in the quarter. I think if you look at our year-to-date, we are running G&A at about 4.3% of revenue. That or slightly below that is probably a little better target. There were a couple things that hit the third quarter that caused it to be at 4% rather than a little higher than that.

As we have talked about in prior calls, I believe we are virtually stepping away from being in the management services business and some of that exit of those contracts took place at the end of Q2 or early Q3. The way the economics work on those, all the revenue sits up on the revenue line of course but all of those -- all the costs associated with those contracts sits in G&A. So as those contracts peel away, the costs go down probably disproportionate probably to the revenue because of the margins involved in that business.

So again, I think if you look at year-to-date at 4.3%, that's a pretty good run rate I believe currently.

Okay, great. Thank you very much.

(Operator Instructions). Rick D'Auteuil, Columbia Management.

I think I was a little slow on the trigger. All my questions have been asked and answered. Thank you.

Thank you. There are no further questions at the moment, gentlemen. (Operator Instructions).

Well, hearing no more questions, we would like to say thank you for joining us. We appreciate your interest in our Company and we stand ready and able to answer your questions between these calls as we can and we look forward to updating you in the fourth quarter after the first of the year. So thank you very much for your time.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.